Sheela Foam Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Consolidated revenue crosses ₹1,000 crores: A group milestone, with EBITDA exceeding ₹100 crores for the first time in a Q1, driven by strong international performance and Furlenco profitability.
• Standalone margin hit is a deliberate trade-off: Gross margins compressed because management chose to protect foam volume and customer supply commitments in a falling raw-material environment, a strategy that supported higher absolute EBITDA.
• International operations delivered an exceptional quarter: Australia and Spain saw revenue growth of 31% and 54% respectively, with EBITDA margins roughly doubling YoY, aided by inventory gains from carrying lower-cost stock into a rising price environment.
• Furniture entry and U2O expansion signal portfolio ambition: Sofa beds launched under Sleepwell and Kurlon, leveraging Furlenco capabilities, while the U2O dealer network reached nearly 10,000 outlets and value growth far outpaced volume on higher realizations.
• What to watch next quarter: Whether raw-material volatility subsides enough to let the promised gross margin recovery begin, the pace of synergy benefits from the newly installed machine, and any normalization of international inventory gains.

Standalone Margin Mechanics

• Foam growth sacrificed mix for cash: In a quarter where raw material prices fell sharply, foam grew faster than mattresses, pulling down the gross margin mix, but the incremental foam volume was cash-accretive and supported 13% standalone EBITDA growth.
• Supply commitment over quarterly optimization: Management explicitly chose not to moderate foam growth to protect margins, arguing that consistency of supply is what separates Sheela Foam from the unorganized sector, which produces only when opportune.
• Raw material volatility created a margin headwind: TDI and polyol prices fluctuated in a range of +40% to -20%, making margin management difficult while carrying inventory; the company streamlined purchasing and bought maximum on spot, but voyage time still creates a lag.
• Gross margin recovery is the margin lever: Gross margins have fallen by more than the margin improvement needed to hit commitments; even a 2% recovery would put the company ahead of its guided band, provided raw material volatility subsides.
• Derivative closure cleans up reported earnings: With the derivative hedging instrument now closed, there is no mark-to-market impact, so core EBITDA equals reported EBITDA going forward.

Gupta: "You see our gross margins have come down by more than what we had like more than the margin we have to achieve. So even if it goes up by 2-odd percent, we would be there. We would be better than what we have committed. So, it is simply volatility to go away."

International Operations

• Australia turned a corner: Revenue grew 31% and EBITDA margin improved to 12.8% from 6.8%, driven by strategic yield improvement programs, supply chain restructuring, and carrying higher inventory which allowed lower-cost inventory to run longer.
• Spain delivered breakout growth: Revenue grew 54% and EBITDA margin improved to 14.7% from 5.7%, with the same yield and supply chain drivers; a small part of growth was currency-linked, and the lower frequency of foam price changes in international markets allowed higher prices to sustain longer.
• Volatility that hurt India helped international: The same raw material price movements that compressed standalone margins created inventory gains for international operations, making this an exceptional quarter that management does not expect to repeat at the same intensity.
• International inventory impact should normalize in Q2: Inventories are being managed closely and some reduction has already been done, so the tailwind from carrying lower-cost stock should fade.
• Sustainable international economics: Management guided to ~5% local-currency growth and 10–12% sustainable EBITDA margins for mature international operations, though the current year should be higher due to momentum from an elevated starting point.

Volume Growth & Pricing

• Standalone mattress volume grew 6%, ahead of the ~5% industry estimate: Management wants closer to 10% and described sub-10% as "happiness," with full-year double-digit volume growth expected for both foam and mattresses.
• U2O value growth dramatically outpaced volume: Value grew 81% while volume grew 19%, reflecting price increases taken last year after channel feedback that the product could sustain higher pricing, plus the introduction of 5- and 6-inch mattresses that improved category realizations.
• The volume-price trade-off was acknowledged: Management noted that if U2O price increases had been limited to 10–15% instead of the quantum actually taken, volume growth would have been double-digit again, framing the 19% volume outcome as the result of a deliberate pricing choice.
• U2O pricing is now stable: Current pricing levels are sustainable and the channel is settled, suggesting no further large adjustments are planned.
• ASP marginally up: Reflecting some premiumization happening in the portfolio, supported by new product introductions and consumer-led promotions that have shown encouraging early results.

Gautam: "I would say standing around 6% at the moment. I would say it should be another 2% to 3%, sub-10% would be happiness, while the industry, according to us, has grown closer to 5%."

Portfolio Expansion & Integration

• Sofa beds mark the entry into furniture: Launched under both Sleepwell and Kurlon brands, leveraging Furlenco's design, manufacturing, and logistics capabilities; early market response is encouraging and the EBO/COCO network provides a ready physical footprint with minimal incremental investment.
• U2O dealer network reached nearly 10,000 outlets: The category continues to scale its offline presence alongside the introduction of thicker 5- and 6-inch mattresses that lift realizations.
• Kurlon integration is nearly complete: Back-end, front-end, HR, and IT integration is 96–97% done; operating units have been consolidated from 21 to 12, and the synergy machine for the remaining ₹40 crores of benefits has arrived and is under installation, with partial impact possible in Q2 and full impact in Q3 FY27.
• Furlenco shop-in-shop expansion beginning: The first target is 100 stores within the Sheela Foam/Kurlon network, with intent to expand pan-India wherever it fits Furlenco's micro-market philosophy; higher-end Furlenco furniture, accessories, pillows, mattress toppers, and bedding will also be introduced into the store network over time.
• Staqo grew 67% YoY: The SaaS business maintained a healthy 28–30% EBITDA run rate, and its flagship ERP crossed 3.2 lakh users.

Gautam: "So, integration is almost complete, I would say, 96%, 97%, whether on the back-end front or the upside of it or the front-end side of it. Then on the capital side where we have reduced the number of operating units down to 12 from a total number of 21."

Furlenco & Subsidiary Profitability

• Furlenco EBITDA grew 65% YoY: Q4 FY26 net profit of ₹60 crores included ~₹27 crores from deferred tax asset recognition triggered by first-time profitability; Q1 FY27 operating profit was a little lower due to some expenses, but full-year PAT is expected to be higher on increased volumes.
• Further DTA recognition would come at year-end: Any additional deferred tax asset benefit would be visible only in Q4, making the full-year PAT picture clearer only late in the year.
• Furlenco is becoming a group capability engine: Its design, manufacturing, and logistics capabilities are now being leveraged for the sofa bed launch under Sleepwell and Kurlon, and its furniture and accessories will flow into the broader store network.

Raw Material Environment & Outlook

• Volatility expected to persist for months: Management expects raw material price swings to continue at least through October or possibly November, linked to the war and disruptions to both the Suez Canal and Strait of Hormuz routes.
• Inventory management is the swing factor: In a falling raw-material environment, carrying inventory compresses margins; in a rising one, it creates gains, as seen in international operations this quarter; the company is managing inventories closely and has already reduced some exposure.
• Profitability expected to improve from current levels: Whether the improvement accelerates toward year-end depends on how raw material prices behave; management expects to have a clearer answer in another quarter.
• The 15% growth with 15% EBITDA margin target remains: Q1 clocked 20% growth, and management is confident of more than 15% for the full year; the growth and profitability trend is expected to be similar over the next 2–3 years, positively impacting ROCE.

Gautam: "Our expectation is that at least for a couple of months, this volatility will be there. And my expectation is October or up to even November that this would be. I know it is related to the war. And anyway, the war is not over as yet. But even after it is over for a couple of months, we would expect that this — because it has disrupted the supply chains and the other things during this — both the routes of Suez Canal and the Strait of Hormuz, etc., being blocked."

Guidance & Commitments

Key Metrics